BRUSSELS—The Greek debt crisis will be in focus at Monday's meeting of the euro-zone's 17 finance ministers, amid concerns that the stalled talks between Athens and its private-sector creditors could delay a broader bailout package.
The meeting is set to begin in Brussels Monday at 8:30 a.m. EST, ahead of a summit of all 27 European Union finance ministers scheduled for Tuesday.
The discussions will include a proposed fiscal compact, which will tighten the bloc's debt rules. But Greece is likely to be at the forefront after talks to restructure its debt bogged down over the weekend.
"The atmosphere is that there will be drama on Greece on Monday," an EU official said.
Greek Finance Minister Evangelos Venizelos is expected to update his counterparts on the state of play in the talks with private-sector creditors to restructure some €206 billion (€266.38 billion) of debt.
Talks in Athens with the Institute of International Finance, which represents the majority of Greece's private-sector creditors, have dragged on for three weeks. They stalled over the weekend because of a dispute over the interest rate on the new bonds replacing the old bonds, the process chosen to write down 50% of Greece's nominal debt.
People close to the talks said the creditors and Greece were nearing agreement Friday on the interest rates to be paid to creditors on the new bonds, which would average just over 4%.
But while Greece and its creditors are nominally the parties to the negotiation, Germany and the International Monetary Fund have considerable weight. Both are pushing for a lower coupon, with the IMF insisting it not exceed 3.5% on average, the people said.
The minimum that creditors are willing to accept is just over 4%. This rate represents a loss to creditors of 65%-70% in the net present value of existing bonds. That is the most that creditors will accept, say people familiar with the talks.
Germany and the IMF, two of Greece's main official-sector lenders, have raised concerns about the cost of servicing the remainder of Greece's debt; the higher it is, the more funds Athens will need from them in a second bailout.
"The Germans take a very hard line on this," a euro-zone government official said Monday, adding that German opposition could effectively block the process altogether.
The head of the IMF Europe unit, Reza Moghadam, will be attending the meeting. But it isn't clear whether the euro-area finance ministers will be able to make decisions on Greece's debt restructuring and new bailout. Their meeting is in preparation for an EU leaders' summit on Jan. 30, where final decisions may eventually be made.
"Things may only get straight later, at heads-of-state level," the EU official said.
Greece is on a very tight schedule to complete the deal with the private sector and receive the first chunk of its new bailout. It has a €14.4 billion bond maturing on March 20 that it can't afford to pay. Missing payment on that would put the country in default.
Euro-area finance ministers are expected to be joined by counterparts from non-euro EU countries Monday evening to continue talks on the treaty to create the European Stability Mechanism, the European Union's permanent, €500 billion bailout fund. A key outstanding issue, though, is the voting procedures needed to activate the fund
EU leaders at their summit last month said the ESM can be activated by 85% of the euro-zone governments under the system of "qualified majority voting," which adjusts a country's voting power for its size. Finland, however, objected to ending unanimous voting to activate the fund; it has since proposed setting aside part of the ESM's reserves to cover the risk of a loan approved by a qualified majority vote.
The European Commission and the European Financial Stability Facility, however, have voiced concerns that such a system could reduce the lending capacity of the ESM.
The so-called fiscal compact will also be on the agenda. The position that UK Chancellor of the Exchequer George Osborne takes will be watched closely, as it was his country that vetoed the idea of making the fiscal compact EU law, in a move that has created animosity in EU-UK relations and created legal obstacles to the implementation of the new accord.
EU finance ministers will be also be putting the final touches to EU-wide regulation of the over-the-counter derivatives market.
"There's only one point remaining: how overall to agree on the regulators at CCP (central-counterparties) level," an EU official said, adding that the objective was to get maximum consensus.
